Document Sample
					KOVACIC_POST_RR_FINAL                                               3/27/03 4:10 PM

                    Candace Saari Kovacic-Fleischer∗

                           I. INTRODUCTION
     Enron Corporation. Arthur Andersen. Guns. Tobacco. Lead.
Asbestos. Water Pollution. All are in the news as allegedly having
caused injury. All involve restitution. Plaintiffs are bringing suits
claiming that not only have they been injured, but also that the
companies involved have been unjustly enriched at the plaintiffs’
expense. The plaintiffs use, either explicitly or implicitly, the broad
concept of restitution found in section one of the Restatement of the
Law of Restitution. That section, entitled “Unjust Enrichment,” says
“[a] person who has been unjustly enriched at the expense of another
is required to make restitution to the other.”1 In this Article, I
advocate retention of those broad concepts in the current revision of
the Restatement of Restitution.
     Cases that are brought under the Securities Exchange Act
(“Securities Act”)2 routinely use restitution as a remedy. As do
traditional restitution cases, the securities cases raise questions of
what is a benefit, when is the benefit unjust, who should disgorge it,
and to whom. Cases involving dangerous products, where the sellers
have misled the public or avoided expenses that would make the
product or its disposal safer, have been brought by governments or
individuals. Those plaintiffs incurred expenses from the damage

     ∗ Pauline Ruyle Moore Scholar and Professor of Law, American
University, Washington College of Law. This Article arose from the Second
Remedies Discussion Forum. I would like to thank the organizers of the forum
for inviting me to this and the first forum as well. I would also like to thank
Perry Wallace and Walter H. Fleischer for their helpful suggestions on earlier
drafts of this Article; Jordan M. Rubinstein, Class of 2003, for his research
assistance; Dean Claudio Grossman and the American University, Washington
College of Law’s Research Fund for their generous support.
    2. Securities Exchange Act of 1934, 15 U.S.C. § 78 (2001).

KOVACIC_POST_RR_FINAL                                           3/27/03 4:10 PM

902               LOYOLA OF LOS ANGELES LAW REVIEW            [Vol. 36:901

caused by the products.3 The suits are often brought under restitution
as well as other causes of action.4 Most of those cases are dismissed.
Many courts conclude that the companies that produce the products
have no duty to pay for the costs and, thus, cannot be required to
reimburse them; that the harm to health and the environment caused
by the products is too remote to require the companies to pay for
those costs or that plaintiffs lack standing.5 These conclusions all
focus on the relationship between the plaintiffs and defendants.
     Some courts, however, have denied defendants’ motions to
dismiss.6 These cases intrigue me. They remind me of the
development of restitution, where suits that could not be brought
because of lack of privity could be brought through quasi contract.
Restitution was an action that helped limit rigidity in the law. These
cases also remind me of older nuisance cases, such as Boomer v.
Atlantic Cement Company.7 In that case, the court awarded
“permanent damages” instead of an injunction to stop spreading dust
and pollutants on plaintiffs’ land.8 Thus, the Atlantic Cement
Company had to pay for the use of what it had previously considered
to be free resources: The air and surrounding environment. In
economic terms, the company had been externalizing costs. When
ordered to pay damages for harm to the environment, defendants
were internalizing their externalities.
     Under restitution theories, plaintiffs claim that the costs of
selling dangerous products should include the costs of resulting
injuries from the dangerous products where defendants have misled
the public or avoided costs that would have made the products safer.
When plaintiffs pay because of the defendants’ deception of cost
avoidance, then the defendants’ costs are externalized. By not
internalizing these costs, the companies reap excess profits. The
excess profits are unjustly retained because of the defendants’
deception or cost avoidance. The cause of action is restitution. As
with the Securities Act cases, these cases also raise questions about

   3. See discussion infra at Part IV.
   4. See id.
   5. See id.
   6. See Unified Sch. Dist. No. 500 v. U.S. Gypsum Co., 788 F. Supp. 1172,
1176 (D. Kan. 1992); Indep. Sch. Dist. No. 197 v. W.R. Grace & Co., 752 F.
Supp. 286, 302–04 (D. Minn. 1990).
   7. 257 N.E.2d 870 (N.Y. 1970).
   8. See id. at 875.
KOVACIC_POST_RR_FINAL                                              3/27/03 4:10 PM

Winter 2003]            PUBLIC CONCERN CASES                                903

what is a benefit, when is the benefit unjust, who should disgorge it,
and to whom.
     What drew me to look at the Securities Act cases and the
dangerous product cases is an interest in how injuries done to large
groups of people can be redressed and whether restitution can be
used as one of the tools. This is a time when many shareholders and
employees have lost, while executives have gained through illegal or
at least “unjust” actions. This is also a time when local governments
are short of money while damage to citizens from possibly avoidable
dangers from products grows. I advocate that the Restatement
(Third) of Restitution and Unjust Enrichment (“Restatement
(Third)”)9 retain the basic concepts of section one of the first
Restatement: That defendant has a gain, at plaintiff’s expense, which
would be unjust for defendant to retain.10 Section one,11 published in
the late 1930s, is ingrained by the passage of time. Many courts
articulate some variation of these three elements. However, as the
cases below demonstrate, these elements leave a number of questions
unanswered. I suggest that they be answered, not by restricting basic
liability in restitution, but by further clarifying what is a benefit,
when is the benefit unjust, who should disgorge it, and to whom. I
also suggest the basic framework continue to be one of flexibility for
changing times.

     I know that many scholars advocate a narrow and more
predictable reach for restitution. There are many good reasons for
this approach that I will not attempt to summarize here. One
suggested limitation is to restrict disgorgement of gains to those
received by the defendant from a wrongful transfer.13 While this

(Discussion Draft 2002).
   11. See id.
   12. I use restitution and unjust enrichment as approximate synonyms. To
the extent that I do not use them as synonyms, I speak of restitution arising
from liability in unjust enrichment, or as a remedy for unjust enrichment. Cf.
Peter Birks, Unjust Enrichment and Wrongful Enrichment, 79 TEX. L. REV.
1767, 1769–70 (2001) (reviewing the use of the terms restitution and unjust
   13. Cf. id. at 1772–74 (discussing James Edelman’s proposition that
recovery should be limited to situations where “the defendant wrongdoer is
KOVACIC_POST_RR_FINAL                                                 3/27/03 4:10 PM

904               LOYOLA OF LOS ANGELES LAW REVIEW                  [Vol. 36:901

limitation would achieve predictability, I think it goes too far. It
would eliminate cases where the gain is based on externalizing
internalities since those gains do not result from a transfer. For the
same reason, the limitation would not coincide with disgorgement of
gains in all securities cases. Gains based upon fraudulent trading
practices do not always involve a transfer. The limitation would also
eliminate classic restitution causes of action brought by breaching
plaintiffs,14 or plaintiffs not in privity with the defendant,15 unless a
“transfer” was defined to include labor done on the defendant’s
behalf. Even then, however, the transfer would not be wrongful on
the part of the defendant unless the wrongdoing was defined as
withholding payment because not to pay would be unjust. But then
we are back to restitution without the wrongful transfer limitation. In
the “plaintiff in breach” cases, it is the plaintiff, obviously, who
breached the contract. In the “plaintiff not in privity” cases, it is
usually a nonparty to the case who breached a contract but who
cannot profitably be sued.16
     Restitution historically has filled gaps and been viewed by many
as a cause of action with unanticipated potential.17 One of the

compelled to reverse a wrongful transfer to himself,” not situations where a
wrongdoer defendant must “give up a profit which came to him through the
wrong independently of any transfer”).
   14. See, e.g., Britton v. Turner, 6 N.H. 481 (Super. Ct. 1834) (rejecting the
harsh majority rule that would preclude a plaintiff who breached a twelve-
month employment contract after having worked for nine months from
recovering the value of his work minus plaintiff’s damages); see also
RESTITUTION AND DAMAGES 456–59 (6th ed. 2000).
   15. See, e.g., Kossian v. Am. Nat’l Ins. Co., 254 Cal. App. 2d 647, 62 Cal.
Rptr. 225 (1967); see also Candace Saari Kovacic-Fleischer, Teaching
Restitution, 39 BRANDEIS L.J. 657, 659–60 (2001) (discussing why restitution
is a cause of action where the plaintiff and defendant are not in privity).
Teaching Restitution arose from the First Remedies Discussion Forum, held at
the Brandeis School of Law at the University of Louisville.
   16. See Candace S. Kovacic[-Fleischer], A Proposal to Simplify Quantum
Meruit Litigation, 35 AM. U. L. REV. 547, 628–41 (1986) (analyzing cases in
which restitution is sought from defendants not in privity with the plaintiff).
§ 1.1, at 3 (1977) (Restitution can “arise in a bedazzling variety of
situations.”); David N. Fagan, Achieving Restitution: The Potential Unjust
Enrichment Claims of Indigenous Peoples Against Multinational
Corporations, 76 N.Y.U. L. REV. 626, 629 (2001) (“Unjust enrichment
originated as a theory of recovery in order to fill gaps left uncovered by
traditional legal categories, such as contract, tort, and property law.”); Candace
KOVACIC_POST_RR_FINAL                                                3/27/03 4:10 PM

Winter 2003]            PUBLIC CONCERN CASES                                  905

reasons the discussion forum on restitution was held is because the
framework of restitution is not agreed upon by scholars18 or courts.19
This Forum served as an opportunity to share our views as to what
shape the Restatement (Third) might take.
     The fact that plaintiffs are bringing claims of unjust enrichment
in cases of current public concern, and that not all courts are
dismissing them out of hand, indicates an interest in this particular
nonstatutory action as a means of addressing modern problems. A
quick check of Lexis since the year 2000 revealed that a number of
cases still cite the first Restatement.20 The provisions most
frequently cited are section one, quoted above, section 160,21 or their
introductory remarks or examples. Section one is the first section of
Part I, “The Right to Restitution (Quasi Contractual and Kindred
Equitable Relief),” while section 160 is the first section of Part II,
“Constructive Trusts and Analogous Equitable Remedies.”22 Both
sections discuss broad principles, possibly among the broadest of the
statements in the first Restatement.
     The benefit of the common law judicial system, I believe, is its
ability to adapt to changing conditions and, thus, share a role with the
legislative and executive branches in creating law. If in using the
common law, the courts deviate too far from the expectations of

S. Kovacic[-Fleisher], Applying Restitution to Remedy a Discriminatory
Denial of Partnership, 34 SYRACUSE L. REV. 743 (1983).
    18. See, e.g., Symposium, Restitution and Unjust Enrichment, 79 TEX. L.
REV. 1763–2197 (2001) (discussing various theories of restitution and unjust
    19. See Kovacic[-Fleischer], supra note 17 (discussing how the courts’
misunderstandings of restitution have caused unnecessary litigation).
    20. A Lexis search of “Restatement w/2 Restitution” with date restrictions
from January 2000 to March 2002 (the Second Remedies Discussion Forum
was held in April 2002) found seventy-eight federal and eighty-two state cases
citing the Restatement of the Law of Restitution. A few courts cited the
Restatement (Second) and a few cited the Restatement (Third). One court
refused to follow the Restatement (Third) because it was a draft and relied only
on the first Restatement.
    21. Section 160, entitled “Constructive Trust,” provides: “Where a person
holding title to property is subject to an equitable duty to convey it to another
on the ground that he would be unjustly enriched if he were permitted to retain
it, a constructive trust arises.” RESTATEMENT OF THE LAW OF RESTITUTION §
160 (1937).
    22. Id. §§ 1, 160.
KOVACIC_POST_RR_FINAL                                               3/27/03 4:10 PM

906               LOYOLA OF LOS ANGELES LAW REVIEW                [Vol. 36:901

society, the legislature can correct those deviations or it can react to
changes in society without waiting for word from a court.
     Courts today are presented with claims of unjust enrichment in
many cases of first impression. These cases may, at times, enable
courts to do with restitution what earlier courts did with contracts
and torts. Promissory estoppel and unconscionability were common
law doctrines that arose to meet situations that did not fit
comfortably either within or without contract law. Those doctrines
may be difficult to apply and may, in some instances, have been
supplanted or supplemented by statutes, but they are now established
aspects of contract law.23 Within the law of torts, the doctrines of
intentional infliction of emotional distress and even negligent
infliction of emotional distress have developed, even though lawyers
and judges from decades or centuries before would not have accepted
them.24 Nuisance theory evolved to try to resolve problems with
industrial pollution, until supplemented by statutes that try to shift
the costs of polluting air and water—resources that previously had
been considered free—to the polluters.25
     These examples from contract and tort law do not indicate that
plaintiffs should prevail in every case of first impression with an
unjust enrichment claim. However, the framework for restitution
should enable today’s common law courts to resolve cases involving
new societal problems. The framework will need to provide
guidelines without completely restricting the ability of courts to
make new law.
     Perhaps some courts will find new applications for an old cause
of action. Over 100 years ago, Learned Hand responded to criticisms

   23. See Eben Colby, What Did the Doctrine of Unconscionability Do to the
Walker-Thomas Furniture Company, 34 CONN. L. REV. 625, 628 (2002)
(stating that the courts “squeezed” relief for bad bargains under the idea of
unconscionability into contract law when in reality no such relief existed); Val
D. Ricks, The Sophisticated Doctrine of Consideration, 9 GEO. MASON L. REV.
99, 117–18 (2000) (stating how promissory estoppel was developed to deal
with the non-bargained-for reliance cases, which were anomalous to traditional
contract consideration cases).
   24. See, e.g., Charles E. Cantu, An Essay on the Tort of Negligent Infliction
of Emotional Distress in Texas: Stop Saying it Does Not Exist, 33 ST. MARY’S
L.J. 455, 459–68 (2002) (detailing the cautious development of the tort of
negligent infliction of emotional distress in both Texas and the rest of the
   25. See Boomer v. Atl. Cement Co., 257 N.E.2d 870 (N.Y. 1970).
KOVACIC_POST_RR_FINAL                                               3/27/03 4:10 PM

Winter 2003]            PUBLIC CONCERN CASES                                 907

that “unjust enrichment” is too vague for courts to apply, saying that
the concepts of the “ordinary prudent man” and “enjoyment” of land
were also vague, but were used in the common law.26 He said
further, “Surely the standard of what such results are in [cases
involving the ordinary person and enjoyment of land] is quite as
incapable of precise definition as that of what acts are unjust.”27
Reporters of the Restatement of the Law of Restitution, Warren A.
Seavey and Austin W. Scott, said that the development of tort and
contract law required “a large number of individual rules to
determine when relief will be given . . . . The situation is the same in
the case of the fundamental conception of restitution. It requires an
extensive set of individual rules to spell out what is meant by
‘unjust’ . . . .”28

     Suits involving Enron and Arthur Andersen have been brought
under insider trading provisions of the Securities Exchange Act.29
The SEC or private plaintiffs seek restitution of the profits made by
insider traders. The use of restitution as a remedy in Securities Act
cases is long standing.30 The remedy is a judicial creation, not
statutory.31 Perhaps, because of this, courts applying restitution in

   26. See Learned Hand, Restitution or Unjust Enrichment, 11 HARV. L. REV.
249, 249–50 (1898).
   27. Id.; see also Kovacic[-Fleischer], supra note 18, at 770–73 (1983)
(reviewing the discussions of other learned scholars and jurists that the term
“unjustness” is not too vague for common law use).
   28. Warren A. Seavey & Austin W. Scott, Restitution, 54 LAW Q. REV. 29,
36 (1938).
   29. 15 U.S.C. § 78j; see 17 C.F.R. § 240.10b-5 (2002). Since the Enron
and Arthur Andersen scandals, a number of companies have been found to
have committed fraud and/or violated securities laws.
   30. See, e.g., SEC v. Tex. Gulf Sulphur Co., 446 F.2d 1301 (2d Cir. 1971)
(holding that requiring corporate defendants to make restitution of profits did
not constitute penalty assessment). I am grateful to my colleague Professor
Perry Wallace from American University, Washington College of Law, for
reading a much earlier draft of this Article and alerting me to a
misunderstanding I had about securities markets. Any mistakes in this draft
about securities matters, a field in which I am not adept, are solely mine.
   31. See, e.g., Janigan v. Taylor, 344 F.2d 781, 786 (1st Cir. 1965) (“[I]t is
simple equity that a wrongdoer should disgorge his fraudulent enrichment.”);
SEC v. Yun, 148 F. Supp. 2d 1287, 1289 (M.D. Fla. 2001) (“Disgorgement of
the ill-gotten profits from an insider trading scheme is a remedy often granted
against those who violate the securities laws. No statute governs the
KOVACIC_POST_RR_FINAL                                               3/27/03 4:10 PM

908               LOYOLA OF LOS ANGELES LAW REVIEW                [Vol. 36:901

Securities Act cases have had to answer some of the same questions
that arise in common law restitution cases: What is meant by
benefit, when is it unjust, who should disgorge it, and to whom.

      The cases involving guns, tobacco, lead, asbestos, and water
pollution use restitution as a common law cause of action. Plaintiffs
want the manufacturers or distributors of dangerous products to
disgorge what they have saved by not having to pay for the
consequences of the dangers. Most, if not all, of these cases are more
recent than the early restitution cases under the Securities Act. Many
are cases of first impression. Some of the plaintiffs have survived
motions to dismiss often with the courts reciting in some form the
three elements from section one of the Restatement of the Law of
Restitution. As with the Securities Act cases, these cases raise the
questions of what is a benefit, when is it unjust, who should disgorge
it, and to whom.
      Most of the cases discussed below are among the minority of
cases that permit claims in restitution in cases of public concern. I
include long excerpts from these cases so that we can see the courts’
reasoning, not my paraphrasing of it. I also discuss a few of the
cases with contrary reasoning.

                        V. SPECIFIC RECENT CASES

                    A. Securities Exchange Act
     Enron Corporation was a major energy brokerage company.
Arthur Andersen was its accounting firm. During the latter part of
2001, Enron’s stock plummeted suddenly, and Enron was forced into
bankruptcy. Many institutions and individuals, including Enron’s
employees, owned Enron stock. Some of the stock was held in
retirement plans. Those holding stock during its plunge lost

disgorgement of ill-gotten profits—rather, principles of equity provide the
foundation for this penalty.”); see also Tex. Gulf Sulphur Co., 446 F.2d at 1307
(noting that disgorgement of profits arises from the inherent equity power of
the district courts).
   32. See, e.g., Marisa Rogoway, Proposed Reforms to the Regulation of
401(k) Plans in the Wake of the Enron Disaster, 6 J. SMALL & EMERGING BUS.
KOVACIC_POST_RR_FINAL                                             3/27/03 4:10 PM

Winter 2003]            PUBLIC CONCERN CASES                               909

     In Newby v. Enron Corp.,33 a class of investors who purchased
Enron stock between October 19, 1998 and November 27, 2001,
sued Enron Corporation and its officers and directors. The suit
alleges that defendants, in violation of the disclosure requirements of
the Securities Exchange Act of 1934, issued falsely favorable
information about the company and sold shares of stock between
October 1998 and November 2001, before the adverse information
that they had concealed was disclosed.34 Thus, defendants, through
unlawful insider trading, were able to take advantage of the favorable
price of the Enron stock when they sold it, while others lost most or
all of their value in the stock by buying or not selling at that time.35
     The initial proceeding in Newby was not a motion to dismiss by
defendants, but rather a motion to freeze assets pending judgment.36
The court held that it had the authority to grant the motion to freeze
assets as plaintiffs were seeking equitable and not legal relief, but
found that plaintiffs had not shown the irreparable injury necessary
for relief prior to judgment.37 For substantive relief, plaintiffs asked
in part for restitution for:
     an accounting of [the proceeds of defendants’ alleged
     insider trading]; disgorgement of these proceeds; and
     restitution of the money paid for securities by members of
     the class, as well as compensatory damages [and] rescission
     or a rescissionary measure of damages as to its section 11
     claims [based on untrue statements of material fact in
     Enron’s registration statements], costs and attorney fees.38
     SEC v. Yun39 is a recent case which analyzes restitution in the
context of a Securities Act case brought by the SEC. The issue in
Yun was whether the defendants could be jointly and severally
required to disgorge the gain from insider trading even though only

L. 423, 424 (2002) (detailing how corruption within Enron caused its stock to
drop from $80 per share in January 2001 to $0.67 per share in February 2002,
resulting in Enron employees’ losing both their jobs and approximately $1
billion in savings).
   33. 18 F. Supp. 2d 684, 691 (S.D. Tex. 2002).
   34. See id. (alleging violations of 15 U.S.C. §§ 77k, 77o, 78j, 78t).
   35. See id.
   36. See id.
   37. See id. at 709 (The court issued a temporary injunction requiring
Andersen to obtain the court’s permission before disposing of assets).
   38. Id. at 692–93.
   39. 148 F. Supp. 2d 1287 (M.D. Fla. 2001).
KOVACIC_POST_RR_FINAL                                           3/27/03 4:10 PM

910               LOYOLA OF LOS ANGELES LAW REVIEW            [Vol. 36:901

the tippee, and not the tipper, had profited from the trading.40 The
court noted that in SEC cases “disgorgement [of profits] is usually
considered rather routine.”41 The court identified the purpose of
disgorgement as:
     the prevention of unjust enrichment—that is, that those who
     have violated the securities laws are not allowed to gain by
     their illegal conduct. Accordingly, disgorgement is a
     powerful deterrent against misuse of material, non-public
     information.     Moreover, because disgorgement is an
     equitable remedy, it does not serve to punish or fine the
     wrongdoer, but simply serves to prevent the unjust
     The court then analyzed the difficulty of ordering disgorgement
of gain from a “tipper” when the gain is held by the “tippee.” The
court quoted the rationale of the Second Circuit’s Texas Gulf
Sulphur43 case:
     [W]ithout such a remedy [disgorgement of profits from
     tippers regardless of gain], insiders could easily evade their
     duty to refrain from trading on the basis of inside
     information. Either the transactions so traded could be
     concluded by a relative or an acquaintance of the insider, or
     implied understandings could arise under which reciprocal
     tips between insiders in different corporations could be
The court did note that there was inconsistency in ordering
disgorgement in Securities Act cases:
     [I]t has become well-established that joint liability between
     a tipper and tippee is appropriate, even if the tipper received
     few or none of the profits realized by the tippee.
       Such authority, however, does not establish an ironclad
     rule. Courts also frequently note that disgorgement, as an
     equitable remedy, should not operate as a fine. Applying
     the maxim that disgorgement seeks only to prevent unjust

  40. See id. at 1289.
  41. Id. at 1290.
  42. Id. (citations omitted).
  43. SEC v. Tex. Gulf Sulphur Co., 446 F.2d 1301 (2d Cir. 1971).
  44. Yun, 148 F. Supp. 2d at 1290 (quoting Texas Gulf Sulphur, 446 F.2d at
KOVACIC_POST_RR_FINAL                                       3/27/03 4:10 PM

Winter 2003]            PUBLIC CONCERN CASES                         911

     enrichment, courts have ordered defendants to disgorge
     only the profits they received in the insider trading scheme.
     At least one court has reduced the disgorgement remedy by
     the amount a defendant paid to his broker, in recognition of
     the fact that money paid for broker fees cannot be unjust
     enrichment or an ill-gotten gain.45
     Despite the inconsistent cases, the court in Yun followed the
reasoning of Texas Gulf Sulphur and held the tipper and tippee
jointly liable for disgorging profits although only the tippee had
received them. The judge said:
     [T]his Court concludes that Yun received some intangible
     unjust enrichment from the insider trading scheme;
     moreover, this Court cannot categorically conclude that
     Yun and Burch did not plan that Yun might receive some
     other, tangible benefit.
       More importantly, the justification for the imposition of
     joint liability for non-profiting tippers neatly fit the facts of
     this case. As the Second Circuit notes:
           A tippee’s gains are attributable to the tipper,
           regardless whether benefit accrues to the tipper. The
           value of the rule in preventing misuse of insider
           information would be virtually nullified if those in
           possession of such information, although prohibited
           from trading in their own accounts, were free to use the
           inside information on trades to benefit their families,
           friends, and business associates.
       . . . [T]his Court concludes that the deterrent effect of
     disgorgement would be compromised in this case, given the
     highly facile, and easily concealable manner in which
     Burch and Yun could have exchanged compensation.
       Finally, . . . the clear congressional intent that joint
     liability for a non-profiting tipper was specifically endorsed
     by the House of Representatives in the passage of the bill
     establishing civil penalties for insider trading. Such a
     congressional endorsement is understandable given the
     long-held view in Anglo-American jurisprudence that
     members of a conspiracy are held criminally liable for the

  45. Id. at 1291 (citations omitted).
KOVACIC_POST_RR_FINAL                                                 3/27/03 4:10 PM

912               LOYOLA OF LOS ANGELES LAW REVIEW                  [Vol. 36:901

     reasonably foreseeable actions of their co-conspirators.
     Consequently, in this civil conspiracy, attributing the ill-
     gotten gain to Yun presents a symmetrical analogy; Burch’s
     realization of profits from this insider trading scheme was
     unquestionably a reasonably foreseeable consequence of
     Yun’s actions.46
     Yun appears to combine restitution with policies of deterrence
and criminal law. It appears that the Securities Act cases have not
resolved what type of benefit—actual or potential—should be
disgorged. Making someone liable for disgorging gain when that
person does not hold the gain is not a typical restitutionary
recovery.47 Perhaps restitutionary gain does not need to be limited to
tangible gain. It could include potential gain because of a
presumption that the tipper could benefit or might have benefited by
the trades of the tippees, thus making potential gain appear to be
actual gain. Perhaps it could be identified as “presumptive gain.”
     There are other differences between the Securities Act and
common law restitution besides the question whether actual or
potential gain is disgorged. The court in Yun refers to disgorgement
as an equitable remedy.48 That would seem contrary to the often-
stated requirement of tracing in suits in equity when seeking
disgorgement of gain.49 Tracing, of course, would not be possible if
the relief were the disgorging of potential rather than actual gain.
The lack of tracing, however, would not preclude an action in legal
restitution for the value of the potential gain, rather than an equitable

   46. Id. at 1292 (citations omitted).
   47. “‘Ordinarily, the measure of restitution is the amount of benefit
received . . ., but . . ., if the loss suffered differs from the amount of benefit
received the measure of restitution may be more or less than the loss suffered
or more or less than the enrichment.’” Id. at 1290 (quoting RESTATEMENT OF
THE LAW OF RESTITUTION § 150 (1937)). Section 150 offers a variety of
approaches for defining gain. The Restatement is in the process of being
revised. How section 150 should be incorporated into the revised Restatement
(Third) is beyond the scope of this Article.
   48. See Yun, 148 F. Supp. 2d at 1290.
   49. Tracing is a shorthand term for equitable restitution’s requirement that
the plaintiff be able to trace what was taken from him or her to that which the
plaintiff wants conveyed back. A plaintiff is permitted to seek a constructive
trust or other equitable restitution even if the property has changed form, so
long as the plaintiff’s property can be traced to that which will be conveyed.
See LEAVELL ET AL., supra note 14, at 397–405.
KOVACIC_POST_RR_FINAL                                               3/27/03 4:10 PM

Winter 2003]            PUBLIC CONCERN CASES                                 913

order to convey the gain.50 In addition, because the securities cases
can involve either a governmental or a private plaintiff, the courts do
not always focus on the “at plaintiff’s expense” element. The
government would not be materially detrimented by the defendant’s
violation of insider trading prohibitions. Thus, the courts do not
always require that the benefit be disgorged to an individual who has
been detrimented. The differences between Securities Act and
common law restitution raise questions whether or how restitution in
the common law should incorporate restitution in Securities Act
cases. Should the restitution used in Securities Act cases be deemed
sui generis, or else not “real” restitution, or should the Restatement
(Third) expand to include at least some of the uses of restitution in
Securities Act cases?

                       B. Dangerous Products
     The cases discussed in this Section have similar factual bases
despite involving different products. All seek disgorgement of what
the defendant has gained or saved by not reimbursing harm caused
by the products put into commerce. All involve an arguably unjust
act, such as deceiving the public or avoiding costs that could make
the product safer. Some of the cases refer to restitution’s ability to
require the defendants to internalize their externalities.51 The cases,
however, are not similar in result. Most of the cases discussed below
involve plaintiffs surviving motions to dismiss. It must be noted, as
cited in the cases discussed below, that plaintiffs do not survive
motions to dismiss in the majority of dangerous products restitution
                                  1. Guns
     A number of suits in unjust enrichment (along with other counts)
have been filed against gun manufacturers by plaintiff cities or
victims of gun violence. Most have not survived motions to dismiss.

   50. A number of cases discussed in this Article refer to restitution as
equitable. However, it can be either legal or equitable. For a brief discussion
of the difference between legal and equitable restitution, see id. at 665–67.
Otherwise, the difference between legal and equitable restitution is not within
the scope of this Article.
   51. See discussion supra at Part II.
KOVACIC_POST_RR_FINAL                                         3/27/03 4:10 PM

914               LOYOLA OF LOS ANGELES LAW REVIEW           [Vol. 36:901

A few have. City of Boston v. Smith & Wesson Corp.52 was one.
The City claimed that the manufacturers and distributors of guns
knew or should have known of the unreasonable dangers of the guns;
could have used safety devices to decrease the dangers; knew that
their products could be made to prevent firing by unauthorized users
and knew that the City would be forced to bear substantial
expenses.53 Those expenses include:
     costs . . . for prevention, amelioration and abatement of the
     ongoing public nuisance caused by Defendants. . . .
     increased spending on . . . law enforcement, emergency
     rescue services, increased security at public schools and
     public buildings, costs for coroner and funeral services for
     unknown         victims,    pensions,    disability benefits,
     unemployment benefits, higher prison costs, and youth
     intervention programs . . . [and] lower tax revenues and
     lower property values.54
The judge said, “[p]laintiff’s harm is in essence the type of harm
typically suffered by municipalities due to public nuisances”55 and
cited White v. Smith & Wesson Corp.,56 a gun case described below.
     In City of Boston, the defenses included remoteness, the
economic loss rule, and improper regulation of interstate
commerce.57 While the court reviewed many cases which had
dismissed similar complaints based on similar defenses, it concluded
that the defenses did not justify dismissing the complaint. The court
added a statement about the potentiality of using law to solve current
problems, saying:
     It is settled law that a complaint should not be dismissed
     “simply because it asserts a new or extreme theory of
     liability or improbable facts.” A motion to dismiss is not an
     appropriate vehicle for “resolving undecided points of
     substantive law[.]” . . . Even if Plaintiffs’ allegations

  52. No. 1999-02590, 2000 Mass. Super. LEXIS 352, at *1 (Mass. Super.
Ct. July 13, 2000).
  53. See id.
  54. Id. at *23.
  55. Id. at *24–25.
  56. 97 F. Supp. 2d 816 (N.D. Ohio 2000).
  57. See City of Boston, No. 1999-02590, 2000 Mass. Super. LEXIS 352, at
KOVACIC_POST_RR_FINAL                                              3/27/03 4:10 PM

Winter 2003]              PUBLIC CONCERN CASES                              915

     present an extreme theory of liability, a motion to dismiss is
     not the proper vehicle to challenge the theory.58
     The court described and answered the defendants’ concern as to
the ramifications of not dismissing the claim in a footnote.
Defendants claimed:
     a veritable Pandora’s box would be opened, because cities
     would be allowed to sue automobile manufacturers on the
     theory that vehicles are made so as to be able to violate
     speed laws and sue liquor manufacturers on the theory that
     Scotch bottles are capable of being opened and the contents
     consumed by underage drinkers. These examples
     misconstrue Plaintiffs’ allegations. Plaintiffs allege that
     Defendants’ misconduct (i.e., allegedly fueling and
     exploiting an illegal firearms market and allegedly
     manufacturing defective and unreasonably dangerous
     products) caused Plaintiffs to suffer the harm discussed in
     the text. An apt analogy, to use Defendants’ illustration,
     would be allegations that the alcohol industry exploited and
     relied upon an illegal, secondary market of underage
     drinkers and sold defective products, causing harm. In
     other words, it is not the mere manufacture and sale of a
     lawful product of which Plaintiffs complain, but rather the
     tortious manufacture and sale.59
     In deciding not to dismiss the unjust enrichment claim, the court
     Plaintiffs allege that they have conferred a benefit upon
     Defendants by paying for the costs of the harm caused by
     Defendants’ conduct (“externalities”). Plaintiffs further
     allege that Defendants undertook the alleged wrongful
     conduct for the purpose of increasing their profits. Thus,
     Plaintiffs state a claim for unjust enrichment.60
     White v. Smith & Wesson Corp.61 involved the same defendant
and similar facts, but in Ohio, not Massachusetts. As in City of

  58.   Id. at *27 (citations omitted) (alteration in original).
  59.   Id. at *28 n.32 (citations omitted).
  60.   Id. at *78–79 (citations omitted).
  61.   97 F. Supp. 2d 816.
KOVACIC_POST_RR_FINAL                                            3/27/03 4:10 PM

916               LOYOLA OF LOS ANGELES LAW REVIEW             [Vol. 36:901

Boston, plaintiffs, the Mayor, and the City of Cleveland, survived a
motion to dismiss.62 There the court said:
     In order to maintain a cause of action for unjust enrichment
     under Ohio law, a plaintiff must allege: (1) a benefit
     conferred by a plaintiff upon a defendant; (2) knowledge by
     the defendant of the benefit; and, (3) retention of the benefit
     by the defendant under circumstances where it would be
     unjust to do so without payment. Unjust enrichment arises
     [under Ohio law] not only where an expenditure by one
     party adds to the property of another, but also where the
     expenditure saves the other from expense or loss.
       Plaintiffs allege that they have conferred a benefit upon
     Defendants, i.e., that the City has paid for what may be
     called the Defendants’ externalities—the costs of the harm
     caused by Defendants’ failure to incorporate safety devices
     into their handguns and negligent marketing practices.
     Plaintiffs further allege that Defendants are aware of this
     obvious benefit, and that retention of this benefit is unjust.
     Plaintiffs have stated a claim and thus . . . their claim
Both of the Smith & Wesson cases relied on the three standard
elements of restitution. However, White added an element of the
defendant’s knowledge, an element that was not necessary and
sometimes caused confusion.64
     In Ileto v. Glock,65 a federal district judge dismissed plaintiffs’
claims of negligent distribution and nuisance against a gun
manufacturer. The plaintiffs were victims of gun violence.66 The
judge cited many cases granting similar motions to dismiss.67
Although Ileto did not indicate that the plaintiffs raised an unjust
enrichment claim, the judge cited City of Boston, described above, as

  62. See id. at 819.
  63. Id. at 829 (citations omitted).
  64. See, e.g., DCB Constr. Co. v. Cent. City Dev. Co., 965 P.2d 115, 119–
20 (Colo. 1998) (discussing rejection of the “acceptance of benefit element”
and citing Candace S. Kovacic[-Fleischer], A Proposal to Simplify Quantum
Meruit Litigation, 35 AM. U. L. REV. 547, 554–60 (1986)).
  65. 194 F. Supp. 2d 1040, 1056–61 (C.D. Cal. 2002).
  66. See id. at 1043–46.
  67. See id. at 1049.
KOVACIC_POST_RR_FINAL                                         3/27/03 4:10 PM

Winter 2003]            PUBLIC CONCERN CASES                           917

“persuasive authority.”68 He said he “reluctantly” had to grant the
motion to dismiss because, as a federal judge deciding state matters,
he “[wa]s at all times bound by the precedent established by
California court decisions in anticipating how the California
Supreme Court would decide [the] motion.”69 Presumably, an
additional claim in unjust enrichment would not have changed his
                              2. Tobacco
     In City of St. Louis v. American Tobacco Co.,70 the United States
District Court for the Eastern District of Missouri held that
“reasonable basis exists” for plaintiffs having stated a claim under
section 115 of the first Restatement for reimbursement of health care
costs caused by tobacco use to those who could not afford the care
themselves.71 Section 115 provides:
     A person who has performed the duty of another by
     supplying things or services, although acting without the
     other’s knowledge or consent, is entitled to restitution from
     the other if
          (a) he acted unofficiously and with intent to charge
          therefor, and
          (b) the things or services supplied were immediately
          necessary to satisfy the requirements of public
          decency, health, or safety.72
     The court elaborated that plaintiffs claim “in discharging their
governmental public benefit functions, [defendants] were required to
provide unreimbursed healthcare to Medicaid and medically indigent
patients for these tobacco related illnesses caused by defendants’
addictive tobacco products.”73 The issue was whether the case had
been properly removed to federal court.74 The court granted
plaintiffs’ motion to remand the case to state court because the
plaintiff had shown that it had stated a claim against another

  68.   Id.
  69.   Id.
  70.   70 F. Supp. 2d 1008 (E.D. Mo. 1999).
  71.   Id. at 1014.
  73.   See Am. Tobacco Co., 70 F. Supp. 2d at 1011.
  74.   Id. at 1019.
KOVACIC_POST_RR_FINAL                                               3/27/03 4:10 PM

918               LOYOLA OF LOS ANGELES LAW REVIEW                [Vol. 36:901

defendant in Missouri, thus destroying federal diversity
jurisdiction.75 The Missouri defendants were distributors of tobacco
products and the potentially viable claim against them was under
section 115 of the first Restatement.76 The court refused to follow
two prior Missouri precedents which suggested that the plaintiffs’
claims were too indirect and remote because “a substantial period of
‘radical change in society, its institutions, and tort and criminal law’
has passed since the early years of [the twentieth century].”77
     The Third Circuit, in Allegheny General Hospital v. Philip
Morris,78 reached the opposite result with respect to the viability of
charitable hospitals’ unjust enrichment claims.79 The court described
the factual basis of the claim, saying:
     The Hospitals’ allegations encompass two theories—an
     indirect injury theory and a direct injury theory. Under the
     indirect injury theory, the Hospitals allege that, through
     deception, the Tobacco Companies caused nonpaying
     patients to smoke, inducing significant tobacco-related
     diseases. The law required the Hospitals to provide
     treatment . . . [and therefore] . . . the Tobacco Companies’
     wrongful acts increased the unreimbursed costs the
     Hospitals incurred.
       Under the direct injury theory, the Hospitals allege that
     the Tobacco Companies’ conspiracy to conceal information
     about the risks of tobacco, and to prevent the development
     of safer cigarettes . . . hampered the Hospitals’ efforts to
     reduce tobacco consumption among nonpaying patients . . .
     [and] the Hospitals could have more effectively counseled

   75. See id. at 1020.
   76. See id. at 1014.
   77. Id. at 1013 (quoting Blue Cross & Blue Shield of N.J. v. Philip Morris,
Inc., 36 F. Supp. 2d 560, 581 (E.D.N.Y. 1999)).
   78. 228 F.3d 429 (3d Cir. 2000).
   79. The hospitals sought recovery under a variety of causes of action:
“under federal antitrust laws, 15 U.S.C. §§ 1-37a, the Racketeer Influenced and
Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962, and state common law
claims for fraudulent misrepresentation, fraudulent concealment, negligent
misrepresentation and omission, breach of special duty, public nuisance, aiding
and abetting, indemnity based on intentional conduct, restitution, unjust
enrichment, quantum meruit, and civil conspiracy.” Id. at 434 (emphasis
KOVACIC_POST_RR_FINAL                                           3/27/03 4:10 PM

Winter 2003]            PUBLIC CONCERN CASES                             919

     patients to quit smoking or use safer products, reducing the
     health care costs of treating tobacco-related disease.80
The Allegheny Hospital court analyzed the dismissal of the unjust
enrichment claim by looking at another case, Steamfitters Local 420
v. Philip Morris, Inc.81, stating:
     [i]n the tort setting, an unjust enrichment claim is
     essentially another way of stating a traditional tort
     claim. . . . [There is] no justification for permitting plaintiffs
     to proceed on their unjust enrichment claim once [it is]
     determined that the District Court properly dismissed the
     traditional tort claims . . .82
The court further noted:
     The Hospitals now argue that their unjust enrichment . . .
     claim is not based in tort, but rather in an implied contract
     for the benefit they conferred on the Tobacco Companies
     by providing care to nonpaying patients. . . . The Hospitals’
     quantum meruit claim is based on the theory that by paying
     for the medical services required by nonpaying patients, the
     Hospitals discharged the Tobacco Companies’ legal duties
     and saved them from bearing costs caused by their
     fraudulent and wrongful conduct. The District Court found
     this claim to be without merit.
       We agree. “Unjust enrichment is . . . an equitable doctrine
     [with the following elements:] benefits conferred on one
     party by another, appreciation of such benefits by the
     recipient, and acceptance and retention of these benefits
     under such circumstances that it would be inequitable [or
     unjust] for the recipient to retain the benefits without
     payment of value.” In the present case, the Tobacco
     Companies had no legal obligation to pay the medical
     expenses of smokers, and thus the Hospitals’ provision of
     medical services did not “benefit” the Tobacco Companies
     by removing their obligation. In addition, since the
     Hospitals had an independent obligation to provide health
     care to nonpaying patients, incidental benefit to the

  80. Id.
  81. 171 F.3d 912 (3d Cir. 1999).
  82. Allegheny Gen. Hosp., 228 F.3d at 446–447 (quoting Steamfitters Local
420, 171 F.3d at 936–37).
KOVACIC_POST_RR_FINAL                                                3/27/03 4:10 PM

920               LOYOLA OF LOS ANGELES LAW REVIEW                 [Vol. 36:901

     Tobacco Companies is not enough to maintain an action;
     the nonpaying patients got the main benefit, not the
     Tobacco Companies.
       Even if some benefit went to the Tobacco Companies, it
     is unclear that allowing them to retain it is unjust. First, the
     benefit was incidental to the Hospitals’ performance of its
     duty, and second, the Hospitals did not have a reasonable
     expectation of payment from the Tobacco Companies.
     Lastly, the distance between the Hospitals’ provision of
     medical care and the Tobacco Companies’ alleged benefit
     show that the benefit was not unjust.83
     In Allegheny Hospital the court ruled for the tobacco companies
because they did not have a “legal duty” to provide health care to
those who used tobacco.84 Reaching the opposite result, the court in
the City of St. Louis cited section 115, which refers to defendant’s
having a duty that has been discharged by the plaintiff.85 The court
did not discuss whether the defendant tobacco companies had a duty
toward the plaintiffs, but held that the claim was not too remote at
the removal stage, particularly in light of the “‘radical change in . . .
law.’”86 Apart from lack of duty, the court in Allegheny Hospital
said that the plaintiff did not have “a reasonable expectation of
payment from the Tobacco Companies”87 while the court in City of
St. Louis relied on section 115, which requires that the plaintiff have
an “intent to charge.”88 In contrast, both of the Smith & Wesson
cases, the plaintiffs relied on more general restitutionary principles
and referred to the unjustness of a company’s failure to “internalize

                               C. Lead
     Using a broader definition of benefit than that used by the Third
Circuit in Allegheny Hospital, discussed above, a Rhode Island
Superior Court did not dismiss plaintiffs’ claims that had factual
allegations similar to those in Allegheny Hospital, although relating

  83.   Id. at 446–48 (citations omitted).
  84.   See id. at 447.
  85.   See City of St. Louis, 70 F. Supp. 2d at 1014.
  86.   Id. at 1013 (quoting Blue Cross & Blue Shield, 36 F. Supp. 2d at 581).
  87.   Allegheny Gen. Hosp., 228 F.3d at 447.
  88.   City of St. Louis, 70 F. Supp. 2d at 1016.
KOVACIC_POST_RR_FINAL                                        3/27/03 4:10 PM

Winter 2003]            PUBLIC CONCERN CASES                          921

to lead rather than tobacco (or guns).89 The court, in State v. Lead
Industries Ass’n,90 discussed the issues at some length, including
some standard restitutionary principles:
       The complaint alleges that the defendants have been and
     continue to be unjustly enriched because the State’s paying
     of lead-related costs resulting from the harms caused by the
     defendant’s conduct has conferred a benefit on the
     defendants by allowing them to derive substantial economic
     benefit. The defendants counter that the alleged “conferred
     benefit” is not legally cognizable.
       The doctrine of unjust enrichment “permits the recovery
     in certain instances where a person has received from
     another a benefit, the retention of which, would be unjust
     under some legal principle, a situation which equity has
     established or recognized.” “‘The unjust enrichment
     doctrine has for its basis that in a given situation it is
     contrary to equity and good conscience for one to retain a
     benefit that has come to him [or her] at the expense of
     another and that it is not necessary in order to create the
     obligation to make restitution or to compensate that the
     party unjustly enriched be guilty of a tortious or fraudulent
     act.” In Rhode Island, “actions brought upon theories of
     unjust enrichment and quasi contract are essentially the
     same.” It is well-settled that
          “in order to recover under quasi contract for unjust
          enrichment, a plaintiff is required to prove three
          elements: (1) a benefit must be conferred upon the
          defendant by the plaintiff, (2) there must be
          appreciation by the defendant of such benefit, and (3)
          there must be an acceptance of such benefit in such
          circumstances that it would be inequitable for a
          defendant to retain the benefit without paying the value
       Under the doctrine of unjust enrichment, the concept of
     benefit is construed broadly:

  89. See State v. Lead Indus. Ass’n, No. 99-5226, 2001 R.I. Super. Ct.
LEXIS at 37 (Apr. 2, 2001).
  90. Id.
KOVACIC_POST_RR_FINAL                                                   3/27/03 4:10 PM

922               LOYOLA OF LOS ANGELES LAW REVIEW                     [Vol. 36:901

           “a person confers a benefit upon another if he [or
           she] . . . satisfies a debt or a duty of the other, or in any
           way adds to the other’s security or advantage. He [or
           she] confers a benefit not only where he [or she] adds
           to the property of another, but also where he [or she]
           saves the other from expense or loss. The word
           ‘benefit,’ therefore, denotes any form of advantage.”
       Here, the Attorney General alleges that the State’s
     payment of Lead-related costs has allowed and continues to
     allow the defendants to derive economic gain from their
     promotion and sale of lead while, at the State’s expense,
     avoiding responsibility for the damages it has caused.
     Further the State alleges that the defendants have
     appreciated this benefit and that retention of the benefit is
     inequitable. In order for the defendants to succeed on their
     motion to dismiss, they are required to show that the State
     would not be entitled to relief under any of its alleged facts.
     It is impossible for the Court to determine at this stage that
     the State’s lead-related expenditures have not added to the
     defendants’, including the LIA’s, advantage or saved them
     from loss.91
     In City of New York v. Lead Industries Ass’n,92 the court reached
a similar result. The Appellate Division reversed a dismissal of the
plaintiffs’ suit to recover the cost of abating lead paint hazards.93
The court said “that in undertaking such expenditures plaintiffs
discharged a duty which, although imposed upon plaintiffs by statute
and regulation, should properly have been borne by defendants who
were responsible for having created this danger to public health and
safety . . . .”94 The court also said that denying plaintiffs the right to
recover their expenditures “would be to permit the alleged
defendant-wrongdoers to be ‘unjustly enriched’ by insulating them,
at plaintiffs’ expense, from potential tort and indemnity liability that
would otherwise have arisen.”95

  91.   Id. at *48–52 (citations omitted) (alterations in original).
  92.   644 N.Y.S.2d 919 (1996).
  93.   See id.
  94.   Id. at 922.
  95.   Id. at 925.
KOVACIC_POST_RR_FINAL                                         3/27/03 4:10 PM

Winter 2003]            PUBLIC CONCERN CASES                           923

                                 D. Asbestos
     In Independent School District No. 197 v. W.R. Grace & Co.96
and Unified School District No. 500 v. U.S. Gypsum Co.,97 school
districts sued asbestos manufacturers for the costs the schools
incurred in removing and replacing material containing asbestos.
The suits raised a number of claims including Section 115 of the
Restatement of Restitution.98 Both courts denied the defendants’
motion for summary judgment.99 In denying that motion, the court
in U.S. Gypsum said:
     [R]estitution is applied in two distinct senses. It sometimes
     means restoration . . . a general description of the relief
     afforded by a cause of action, rather than a cause of action
     itself . . . . [R]estitution may be a cause of action based on
     unjust enrichment or a theory of quasi contract.
       The substance of a cause of action for restitution or unjust
     enrichment resides in a “promise implied in law that one
     will restore to the person entitled thereto that which in
     equity and good conscience belongs to him.” . . .
       Plaintiff argues that because defendants put defective and
     unreasonably dangerous products into the stream of
     commerce, which products were installed in public
     buildings, defendants should be made, in equity and good
     conscience, to pay for the removal and replacement of those

                          E. Water Pollution
     In 1991, in Branch v. Mobil Oil Corp.,101 plaintiff homeowners
claimed that the defendants “saved” the costs of pollution abatement
when their oil wells and salt pits polluted plaintiffs’ land and
water.102 The plaintiffs sought the value of the savings.103 A federal

   96. 752 F. Supp. 286 (D. Minn. 1990).
   97. 788 F. Supp. 1173 (D. Kan. 1992).
   98. See U.S. Gypsum, 788 F. Supp. at 1175–76; W.R. Grace, 752 F. Supp.
at 302–04.
   99. See U.S. Gypsum, 788 F. Supp. at 1176; W.R. Grace, 752 F. Supp. at
 100. 788 F. Supp. at 1175 (citations omitted).
 101. 778 F. Supp. 35 (W.D. Okla. 1991).
 102. See id. at 36.
KOVACIC_POST_RR_FINAL                                                3/27/03 4:10 PM

924               LOYOLA OF LOS ANGELES LAW REVIEW                 [Vol. 36:901

district court in Oklahoma denied defendant’s motion to dismiss.104
Citing Olwell v. Nye & Nissen Co.,105 the famous egg washing case,
the court said that “Oklahoma recognizes a claim for negative unjust
enrichment.”106 The court also cited Tilghman v. Proctor.107 In
Tilghman, the Court said that “[i]f, for example, the unauthorized use
by the defendant of a patented process produced a definite saving in
the cost of manufacture, he must account to the patentee for the
amount so saved.”108
     In 1985, in United States v. P/B STCO 213,109 the Fifth Circuit
consolidated three cases in which the United States sought water
pollution clean up costs under the Federal Water Pollution Control
Act.110 The Fifth Circuit affirmed one decision that had awarded the
United States its clean up costs.111 The court reversed two cases that
had been dismissed as untimely.112 The court held that a six-year
statute of limitations applying to “contract[s] express or implied in
law or fact” governed rather than a three-year statute for torts.113
The court reasoned that while pollution might be analogized to a tort,
the action was in quasi contract, contract implied in law, because
“unjust enrichment may consist . . . of one’s avoidance and
consequent shifting to another of the cost of performing a duty that
one is primarily obligated to perform.”114 Unlike the other
dangerous products cases described above, P/B STCO had a statutory
cause of action, making it easier for the court to grant the United

 103. See id. at 35–36.
 104. See id. at 36.
 105. 173 P.2d 652, 653–54 (1946) (holding that the plaintiff could “‘waive
the tort’ and [sue the defendant] . . . in assumpsit for restitution” because the
defendant had misappropriated plaintiff’s egg washing machine and the
plaintiff could choose to recover what the defendant saved by not having to
hire workers to clean the eggs rather than the value of the loss of use of the
 106. Branch, 778 F. Supp. at 36.
 107. 125 U.S. 136 (1888).
 108. See id. at 146 (with respect to patent law, but not unjust enrichment, this
case was superseded by statute as announced in General Motors Corp. v.
Devex Corp., 461 U.S. 648 (1983)).
 109. 756 F.2d 364 (5th Cir. 1985).
 110. See id. at 365–66.
 111. See id. at 377.
 112. See id.
 113. Id. at 366.
 114. Id. at 371.
KOVACIC_POST_RR_FINAL                                          3/27/03 4:10 PM

Winter 2003]             PUBLIC CONCERN CASES                           925

States’ claim because the statute imposed a duty of clean up upon the
defendants.115 However, the court reached into unjust enrichment
common law in order to apply a longer statute of limitations.116

                            VI. CONCLUSION
     The three basic elements of restitution: defendant’s gain,
plaintiff’s expense, and unjustness are threads running through all of
the cases discussed above.117 Questions remain, however. The
dangerous products cases that did not dismiss claims also did not
need to reach some of the harder questions. The courts were not
deciding the final outcome. One of the questions is whether
defendants had a duty to plaintiffs and whether, therefore, any gain is
unjust. As seen above, the courts define duty in a variety of ways,
enabling them to reach contrary conclusions.
     Perhaps it is time to borrow some of the analysis of unjust
enrichment from the Securities Act cases. Corporations have a
fiduciary duty to shareholders. Perhaps it could be argued that it is
unjust for producers of dangerous products to have no duty toward
consumers but to achieve gain at the expense of those who pay for
the harm when the producers have deceived the public or saved the
costs of making a product or its disposal safer.
     The securities cases also have a new application of restitution,
by awarding potential gain in some circumstances. This leads to the
possibility that restitution could develop a greater range of “gains,”
including “potential gains” or “future gains.” The latter would avoid
problems from lack of notice of the unjustness of not internalizing
externalities when such accounting had not previously been required.
Thus, this Article comes full circle. The future gains look something
like the damages awarded in lieu of an injunction to stop polluting,
thus requiring the company to internalize externalities. There, the
common law played an expansive role. Following its historical
origins of finding liability outside typical causes of action, restitution
can do the same, but not if it is rigidly circumscribed. The classic
elements of (1) defendant had a gain (2) at plaintiff’s expense, (3)
that would be unjust for defendant to retain, and measuring the relief
by the amount of defendant’s gain, even if it is greater than the

 115. See id. at 375.
 116. See id. at 376.
 117. See infra at Part II.
KOVACIC_POST_RR_FINAL                                    3/27/03 4:10 PM

926               LOYOLA OF LOS ANGELES LAW REVIEW      [Vol. 36:901

plaintiff’s loss, have worked well in adjusting the law to societal
change. They should continue to do so.

Shared By: